Exports fell in February for the third straight month, a sign the trade-reliant economy is under growing strain and suggesting that the Bank of Japan might eventually be forced to offer more stimulus to temper the effects of slowing external demand and trade friction.
Slower global growth, the U.S.-Chinese trade war and complications over Britain’s exit from the European Union have already forced many policymakers to shift to an easing stance over recent months.
Japan is in a similar situation to much of the rest of the world, where factories have slammed on the brakes and business confidence has plummeted in the wake of rising global economic uncertainty.
Finance Ministry data released Monday showed that exports fell 1.2 percent year on year in February, more than the 0.9 percent decrease expected by economists in a Reuters poll.
That came on the heels of a sharp 8.4 percent year-on-year drop in January. Exports have seen drops in shipments of cars, steel and semiconductor production equipment.
“Exports to advanced nations like the United States and Europe still held firm, but China- and Asia-bound shipments were clearly sluggish,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Exports will remain in a declining trend for the time being, which could curb capital spending and wages. The domestic economy will face a severe situation ahead of October’s consumption tax hike.”
The trade data comes on top of a recent batch of weak indicators, such as factory output and a key gauge of capital spending, which have raised worries that Japan’s record run of postwar growth may come to an end.
Some analysts say a recession cannot be ruled out. The BOJ last week cut its view on exports and output, while keeping policy unchanged. Yet, extended weakness in exports could put it under pressure to deliver more easing, especially as inflation remains well off its 2 percent target and pressure on businesses and consumers continues to rise.
In the news conference following last week’s policy meeting, BOJ Gov. Haruhiko Kuroda acknowledged the challenges the economy faces but gave no indication there will be any additional stimulus.
But Kuroda may have to change tack in the face of a run of weak economic indicators.
Many in the BOJ expect the economy to emerge from the current soft patch in the second half of this year, assuming China’s stimulus plans can revive demand there.
The biggest worry among BOJ policymakers is that weakening exports and output will hurt corporate sentiment, prompting firms to delay capital expenditure and wage hikes.
The trade war between the United States and China — Japan’s largest export markets — has already curbed global trade.
Monday’s trade data showed exports to China, Japan’s biggest trading partner, rose 5.5 percent year on year on shipments of semiconductor production equipment and cars, rebounding from a 17.4 percent drop in January.
However, overall trade to the Asian giant remained weak, as even after averaging effects of the Lunar New Year holiday, China-bound shipments declined 6.3 percent in the January-February period from a year earlier.
Seasonally adjusted overall trade values rose 6.7 percent month on month in February, the strongest rise in two years.
Export volume fell 0.6 percent in the year to February after the previous month’s 9.0 percent decline.
“Shifts in the timing of Chinese New Year partly explain the sharp swings in trade volumes at the start of the year, so the recent strength in export volumes may unwind before long,” said Marcel Thieliant, senior Japan economist at Capital Economics.
“We still think that net trade will remain a drag on GDP growth both in the first quarter and throughout 2019.”
Japan’s shipments to Asia, which account for more than half of its overall exports, fell 1.8 percent, down for the fourth straight month.
U.S.-bound exports rose 2.0 percent, but imports from the United States grew 4.9 percent, resulting in Japan’s trade surplus with the country declining 0.9 percent year on year to ¥624.9 billion in February.
Yet, Japan’s still-large surplus with the U.S. raises concerns among Japanese policymakers and auto exporters that Washington may impose hefty duties on its imports.
Imports of Japanese cars account for about two-thirds of Japan’s $69 billion annual trade surplus with the U.S., making Tokyo and Beijing targets of criticism by Donald Trump.
In February, Japanese auto exports to the United States rose just 0.5 percent year on year to 152,198 units in February, with the value of shipments down 6.8 percent.
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